United States District Court, D. Minnesota
W. Vyvyan, Jessica R. Sharpe, and Christian V. Hokans,
Fredrikson & Byron, P.A., Minneapolis, MN, for Plaintiff
Michaels Stores, Inc.
Mills Scott and Peter D. Stiteler, Fox Rothschild LLP,
Minneapolis, MN for Defendant Sun Life Assurance Company of
OPINION AND ORDER
C. Tostrud United States District Judge
Stores brought this case to obtain a declaration of its
rights under a shopping-center lease with Sun Life Assurance
Company of Canada. Under the lease, the extended absence of
an "Anchor Tenant" from the shopping center gave
Michaels the option to pay a lower monthly rent. The lease
calls this "Alternative Rent." The issue is whether
the lease may be understood to permit Michaels to exercise
this option retroactively-here, more than two years after the
option was triggered and after Michaels paid rent at the
regular amount throughout that time-so that Michaels may
recoup $254, 583.05 of rent it paid to Sun Life. Sun Life
argues that the lease cannot reasonably be interpreted this
way, and it seeks dismissal of Michaels's complaint under
Federal Rule of Civil Procedure 12(b)(6). Sun Life's
motion will be granted because the interpretation of the
lease Michaels advances is not reasonable and, therefore, not
commercial lease that is the subject of this dispute is, like
many commercial leases, lengthy and in some places relatively
complex. It helps to start by describing several basic
background facts and lease terms at a high level. Michaels
entered the lease in 2004; the property that is the subject
of the lease is retail space in a shopping center in Eden
Prairie, Minnesota. Compl. ¶ 10 [ECF No. 1]; Compl. Ex.
A [ECF No. 1-2 at 2-121]. (From this point, Exhibit A to the
Complaint will be cited simply as "Lease, " and
unless otherwise specified, all citations are to Exhibit C to
the Lease, entitled "General Lease Provisions."
See also Lease § 17.11.). Sun Life later
acquired the shopping center and assumed the role of landlord
under the lease. Compl. ¶ 11; see also Lease
§ 17.2 ("Heirs, Successors and Assigns"
clause). Relevant here, the lease contains an "On-Going
Co-Tenancy" provision requiring that certain premises
within the shopping center "be open and continuously
operated by an Anchor Tenant." Compl. ¶ 12; Lease
§ 16.3. The lease defines "Anchor Tenant" by
reference to several attributes one would expect of a large,
well-known national or regional retail store. Lease §
16.3. If an Anchor Tenant is closed for 120 days and various
other conditions are satisfied, then the lease gives Michaels
the option to pay "Alternative Rent, " an amount
set at 3% of Michaels's gross sales for the preceding
calendar month and intended to be less than Michaels's
ordinary fixed monthly rent (which the lease calls
"Minimum Rent"). Id; see also Mem. in
Opp'n at 2 [ECF No. 14] ("Co-tenancy clauses
requiring that certain prime tenants stay in continuous
operation are common in shopping center leases." (citing
1 Law of Real Estate Financing § 5:70)).
July 2016, an Anchor Tenant, Sports Authority, closed. Compl.
¶ 15 (alleging that Sports Authority closed "on or
around July 28, 2016"); see also Id., Ex. C
[ECF No. 1-2 at 125] (attaching letters from Sun Life
asserting that "Sports Authority vacated its space on
July 31, 2016"). The Parties agree that Sports
Authority's closure resulted in the non-satisfaction of
the On-Going Co-Tenancy Requirement. Compl. ¶ 15; Mem.
in Supp. at 2-3 [ECF No. 8]. Michaels alleges its
"corporate real estate department became aware for the
first time that the On-Going Co-Tenancy Requirement was not
satisfied" in January 2019, Mem. in Opp'n at 2, and
that Michaels wrote to Sun Life on January 14, 2019,
declaring its intent to invoke the Alternative Rent option
"effective July 28, 2016, " Compl. Ex. B [ECF No.
1-2 at 123]. Up to that point, Michaels had continued to pay
Minimum Rent for the two and a half years after the Anchor
Tenant had closed and vacated the space, through and
including January 2019. Compl. ¶ 16. Michaels
sought to retroactively pay Alternative Rent for 14 months
from November 2016 through December 2017 by offsetting
amounts from future rent payments. See Compl. Ex. F
[ECF No. 1-2 at 133]; Compl. Ex. B. In response, Sun Life
asserted that Michaels was not entitled to pay Alternative
Rent because it was "not credible that the Sports
Authority closure had a material adverse effect on the
Michaels store" and that "by waiting so long to
respond to the closure, Michaels waived whatever rights it
had under the Lease[.]" Compl. Ex. C; see
Compl. ¶ 18. Michaels paid Minimum Rent for February and
March 2019 but maintained that it was entitled to recover
"any amounts overpaid ... as a result of the
non-satisfaction of the On-Going Co-Tenancy
Requirement." Compl. Ex. E [ECF No. 1-2 at 129-31];
see Compl. ¶¶ 19-20.
brought this case in April 2019, seeking a declaration that
it was entitled to pay Alternative Rent for at least 14
months, and thus was entitled to $254, 583.05 in
reimbursement (the asserted difference between the Minimum
Rent it actually paid for November 2016 through December 2017
and the lower Alternative Rent it wishes to pay).
See Compl. ¶¶ 21-26; Compl. Ex. F. There
is diversity jurisdiction because the amount in controversy
exceeds $75, 000, and the Parties are of diverse citizenship.
Michaels is a Delaware corporation with a principal place of
business in Texas, and Sun Life is a Canadian corporation
with its principal place of business in the United States in
Massachusetts. Compl. ¶¶ 6-7.
settled legal rules govern consideration of Sun Life's
Rule 12(b)(6) motion and interpretation of the lease. The
complaint's factual allegations and reasonable inferences
from those allegations must be accepted as true. Gorog v.
Best Buy Co., 760 F.3d 787, 792 (8th Cir. 2014). The
complaint must "state a claim to relief that is
plausible on its face." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). "As this action
is in federal court based on diversity of citizenship, state
law governs substantive law issues." Paine v.
Jefferson Nat 7 Life Ins. Co., 594 F.3d 989,
992 (8th Cir. 2010) (citation omitted); see also Erie R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938). The Parties
agree that Minnesota law governs here. See Mem. in
Supp. at 3; Mem. in Opp'n at 11. The basis for this
understanding can be found in the lease. It contains a
choice-of-law clause specifying that the contract will be
governed by and construed in accordance with the laws of the
state in which the Shopping Center is located. Lease §
17.3. Based on this provision and the fact that the Parties
agree Minnesota law governs, Minnesota law will be applied
here. See Neth. Ins. Co. v. Main St.
Ingredients, LLC, 745 F.3d 909, 913 (8th Cir. 2014)
("Because the parties do not dispute the choice of
Minnesota law, we assume, without deciding, Minnesota law
applies . . . .").
the rules governing contract interpretation under Minnesota
law, the Minnesota Supreme Court has said that:
"[T]he primary goal of contract interpretation is to
determine and enforce the intent of the parties."
Motorsports Racing Plus, Inc. v. Arctic Cat Sales,
Inc., 666 N.W.2d 320, 323 (Minn. 2003). Interpretation
of unambiguous contracts is a question of law for the court,
as is the determination that a contract is ambiguous.
Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339,
346 (Minn. 2003). The terms of a contract are ambiguous if
they are susceptible to more than one reasonable
interpretation. Id. A contract's terms are not
ambiguous simply because the parties' interpretations
differ. See Id . at 347 (concluding that the
parties' dispute was due to conflicting interpretations
of a contract's requirements, rather than the contract
Staffing Specifix, Inc. v. TempWorks Mgmt. Servs.,
913 N.W.2d 687, 692 (Minn. 2018). "If the
court determines that the contract language is
unambiguous-meaning it has only one reasonable
interpretation-it will give effect to that language" and
determine the parties' intent "from the language of
the written contract alone." Minn. Vikings
FootballStadium, LLC v. Wells Fargo Bank,
Nat'lAss'n,193 F.Supp. 3d 1002, 1011
(D. Minn. 2016). "If the district court determines that
a contract is ambiguous, it may admit parol, or extrinsic,
evidence of the parties' intent." Staffing
Specifix, Inc., 913 N.W.2d at 692 (citations omitted).
"Only if a preponderance of the evidence does not prove
the parties' intent ...